Indian steelmakers are likely to enter 2026 increasingly reliant on exports to offset rising domestic capacity, but access to their top market — Europe — will be constrained by the carbon border adjustment mechanism (CBAM), stricter trade protections, and potentially higher carbon costs. The interplay between capacity growth at home and regulatory barriers abroad will shape India's flat steel market next year.
Domestic crude steel capacity has risen sharply, while demand growth has been uneven and vulnerable to seasonal and macroeconomic headwinds. As a result, Indian mills increasingly turned to exports in the second half of 2025 after local demand failed to absorb incremental output from recent capacity additions.
Europe, historically India's largest overseas market for steel began stockpiling ahead of expected trade policy changes in 2026, enabling Indian mills to export sizeable volumes of hot-rolled coil (HRC) from September.
A drop in imports following provisional safeguard measures and a surge in exports helped India become a net steel exporter in October. Italy, Belgium and Spain together accounted for 20-30pc of India's steel exports during the month.
But this export window may narrow significantly next year. Uncertainty around the EU's CBAM and potential reductions in safeguard quotas has already slowed fresh bookings toward year-end.
European importers are concerned about taxes potentially being much higher if punitive default emissions values are used, sources said. Under default values, Indian blast furnace-based HRC would face a carbon charge of €269.78/t, according to Argus calculations based on a draft EU document circulated in December.
Additionally, India's quarterly HRC quota of 227,782t was exhausted at the end of November. There are expectations that the quota for January-March could also get used up quickly, as many November and December shipments from India are still on the way to Europe. This raises the risk that new shipments may only clear from April. EU buyers had held back bulk purchases while rumours circulated that quota changes could take effect in April rather than July. However, a draft of the EU's post-safeguard steel regulation released earlier this week confirms the changes will start on 1 July.
Indian mills are confident in their ability to submit verified emissions data to the European Commission and believe that greater clarity on the timing and scale of quota changes could help revive European buying interest.
Market participants are also tracking developments around an India-EU free-trade agreement — currently in negotiations — for any indication of exemptions or transitional relief on CBAM obligations.
At the same time, an ongoing anti-dumping investigation into Indian cold-rolled coil adds further uncertainty to Europe's role as a major export destination in 2026.
If not Europe, then what?
If access to Europe tightens materially, the consequences for the domestic market could be significant.
Market participants estimate that India would need to export around 300,000-400,000t/month of HRC to prevent inventories from building further. Failure to achieve this could keep local flat steel prices under pressure as capacity continues to ramp up.
The Argus-assessed domestic 2.5-4mm HRC prices fell by about 6pc to 45,900 rupees/t ($507/t) ex-Mumbai, excluding goods and services tax, on 12 December compared with early August.
Some Indian mills have indicated that they would likely redirect some of the volumes they sold to the EU to other markets. "For HRC, let's say if the EU quota is halved to about 110,000t/quarter next year then that will be consumed and the remaining volumes can be exported to other markets like the Middle East," an executive at a major Indian mill said.
India could also push for more HRC sales into Vietnam but will have to be competitive in terms of pricing because of China's presence in the market, the mill source added.
Indian sellers have already shifted focus to the Southeast Asian market towards the end of the year as European interest slowed and domestic demand was slow to recover after extended monsoons.
In recent weeks, some smaller induction-furnace based steel mills and traders in India have found export opportunities in Africa, particularly for 100×100mm billet.
Unless European policy risks ease, 2026 may mark a turning point where India's expanding steel capacity increasingly tests the limits of export-led market balancing.
